Borrowing is a boomerang

Borrow, borrow, and borrow again. The government is living in a fantasy world, where foreign investors and rich British people have to lend to the government to spend like there was no tomorrow. Their political strategy seems geared to a Spring 2009 election which they will back away from when they see the opinion polls, after a winter of job losses and factory closures.

This government will drown in a sea of red ink. Never have I seen the public accounts in such dire straights. The government assumes a mild and short recession, with recovery beginning in the middle of next year. Even so, they anticipate tax revenues plunging by a massive £73 billion in 2009-10 because the economy will be weak, and anticipate borrowing £157 billion this year and £126 billion next year. This year’s borrowing including buying bank shares amounts to more than 10% of national income. If they turn out to be too optimsitic in their forecasts , it will be worse.

The Opposition talks of the government flashing the national credit card. They are also taking out a huge national mortgage, and will soon have us deep into negative equity, unable to pay the interest bill easily.

If this were a company it would be time for the Non executive Directors to have strong private words with the Chief Executive. They would tell him or her that the strategy was taking the company quickly to a position where it could not afford the interest and all the other bills. They would demand cost cuts and raising more revenue. They would warn that if the company did not do it for itself, the bank manager would take over or eventually the Administrator would be called in by the creditors to do it. It is time for the rest of the Cabinet to warn the PM and Chancellor in private, and time for Parliament to raise the roof beams, warning this government there are limits to how much a country can borrow.

Labour’s crude political strategy is to say they will take care of the victims of recession through spending more public money, whilst the Opposition just wants spending cuts. Please do us a favour. The Opposition welcomes – and urges – action to ease the plight of the victims of recession. We have asked for schemes to help small business struggling to pay the bills, to help Council taxpayers faced with another large public sector demand, and pensioners. More can and should be done. What we cannot afford is the VAT cut, the bank nationalisation, the ID cards, the unelected regional government, the public sector’s rich list, the surveillance society and all the panoply of Labour’s illiberal state.

As I have commented before, what we really can’t afford on top is a long and deep recession. That is why yesterday was such a wasted opportunity. Sensible action to improve the terms of the bank support in a way which cut taxpayer risk and made it more effective would have helped. Tax cuts of the right kind to target money to the lower paid would have helped. Tax cuts for business struggling with insufficient cashflow and restricted borrowing would help. Instead Crash Gordon went for broke with a VAT cut which will do little good, and could be the final weight which pushes this government under in the sea of red ink it has created.

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3 Comments

  1. Brian Tomkinson
    Posted November 25, 2008 at 9:44 am | Permalink

    We are continually being told how serious this recession is and this is why we need extraordinary measures. In the next breath Darling tells us that the economy will begin to grow again by the middle of next year. If he is correct, which is highly unlikely he then chooses to increase taxation which would risk killing off any recovery. We are also told that the great danger is deflation – continually falling prices. What does Darling do – reduces VAT which will reduce prices. I have been convinced for some time that no-one in government knows what to do about our economy and yesterday’s Pre Budget Report provided further proof.

  2. Lola
    Posted November 25, 2008 at 12:12 pm | Permalink

    One of the 'buy' signals for a stock can be the change of management. Similarly, as you say, recovery in fortune for a company only comes when the management is changed. In regards to the Government this is exactly my view and you have endorsed it.

    Given that every single day that the wrong (or no action) is being taken costs us all – rich and poor alike – more and more wealth, the question begs itself just how can we winkle these idiots out of power pdq?

    What can you and your colleagues do to get after Brown and his crew that will drive them to the country as soon as possible? I admit that timing is often critical, as you will need a big and clear majority to carry out the 'right' policies, and maybe that means we have to get well and truly in the clarts before The Voter can truly see that massive expenditure cuts are also necessary to turn us around.

    But still every day's delay is costing us very dear indeed, so what, just what are you going to do get this shower out of power? And if returned to office will you guarantee to pursue policies of sound money, small and genuinely prudent government and restoration of our liberties?

  3. Posted November 25, 2008 at 2:40 pm | Permalink

    The Mandelson/Campbell directed return to "Old Labour" spells absolute disaster for the UK economy, which to be honest was furthest from their minds yesterday.

    I can see the recession lasting beyond 2009, unemployment busting past the 3 million figure and worse still deflationary pressures reducing tax revenues.

    There will be an awful mess for the Conservatives to turn around, but that, surely, is what Brown intended.

  • About John Redwood


    John Redwood won a free place at Kent College, Canterbury, He graduated from Magdalen College Oxford, has a DPhil and is a fellow of All Souls College. A businessman by background, he has been a director of NM Rothschild merchant bank and chairman of a quoted industrial PLC.

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